Government officials and representatives of industry are reportedly willing to raise their offer from 6 billion marks to up to 10 billion marks, while lawyers representing the victims have dropped their demands by about half to between 10 billion and 15 billion marks, participants in the talks said.
One of the lawyers, Edward Fagan, said the sides were getting closer to an agreement on the size of the settlement.
But he said the question of how the money would be allocated among slave labourers who worked in concentration camps and those forced to work in industry, agriculture and other areas was still under negotiation.
The German government said last week that it was prepared to raise its 2 billion mark offer of compensation by 50% if industry made a similar move. Businesses are now reported to be prepared to do so.
Walkout threat
Mr Fagan, who had threatened during the talks on Tuesday to lead a walkout of lawyers representing the victims, welcomed the expected new offer as a sign of "serious movement and flexibility from Germany".
"It will help establish a range in which we can continue to negotiate in good faith," he said.
German companies proposed the compensation fund in February under pressure from lawsuits brought by survivors in the United States.
About 50 firms are contributing to the fund, which aims to compensate about 1.5 million to 2.3 million victims.
Although Germany has compensated the victims of war crimes, it has never provided for the estimated 12 million people put to work to help the Nazi war effort.
Country profiles
Press gloomy over slave labour compensation
(17 Nov 99 | Monitoring)
Stakes rise in Nazi compensation row
(15 Nov 99 | Europe)
US ponders Nazi slave compensation
(04 Nov 99 | Americas)
Nazi slave offer 'disgusting'
(07 Oct 99 | Europe)
Bid to bridge Nazi slave fund row
(25 Aug 99 | Europe)
Ford 'used slave labour' from Auschwitz
(18 Aug 99 | Europe)
Holocaust fund appeals for Nazi victims
(29 Jun 99 | World)
German Government
Simon Wiesenthal Centre
Holocaust Memorial Museum
Swiss Bank claims
The BBC is not responsible for the content of external internet sites.
Violence greets Clinton visit
Russian forces pound Grozny
EU fraud: a billion dollar bill
Next steps for peace
Cardinal may face loan-shark charges
Vodafone takeover battle heats up
(From Business)
Trans-Turkish pipeline deal signed
French party seeks new leader
Jube tube debut
Athens riots for Clinton visit
UN envoy discusses Chechnya in Moscow
Solana new Western European Union chief
Moldova's PM-designate withdraws
Chechen government welcomes summit
In pictures: Clinton's violent welcome
Georgia protests over Russian 'attack'
UN chief: No Chechen 'catastrophe'
New arms control treaty for Europe
Mannesmann fights back
(From Business)
EU fraud -- a billion-dollar bill
New moves in Spain's terror scandal
EU allows labelling of British beef
UN seeks more security in Chechnya
Athens riots for Clinton visit
Russia's media war over Chechnya
Homeless suffer as quake toll rises
Analysis: East-West relations must shift